Q2 2020 TCG BDC Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to T.C.G. Bdcs second quarter 2020 earnings call.
At this time, all participants are any listen only mode.
After the speech the presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that todays conference maybe recorded if you acquire any further assistance. Please press star zero.
I like to hand, the conference over to your hopes to head of Investor Relations Daniel Harris, Sir. Please go ahead.
Good morning, and welcome to TCG Bdcs second quarter 2020 earnings call.
Last night, we issued an earnings press release detailed earnings presentation with our quarterly results a copy of which is available on T.C.G. Bdcs Investor Relations website.
Following my remarks today, we will hold the question answer session for analysts and institutional investors.
Call is being webcast a replay will be available on our website.
Any forward looking statements made today do not guarantee future performance, an undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factor section on for annual report on form 10-K that could cause actual results to differ materially from those indicated.
TC GBDC assumes no obligation to update forward looking statements at any time with that I'll turn the call over toward Chief Executive Officer, Linda pace.
Thank you Dan.
Good morning, everyone and thank you for joining us on our call. This morning to discuss our second quarter 2020 results.
Joining me on the call today is our Chief investment Officer Teller Boswell at our Chief Financial Officer, Tom Henighan.
I'd like to focus my remarks today across three areas first highlighting the positive momentum in our business under our new leadership team.
Second a quick review of our quarterly results and third a discussion of our updated dividend policy.
Let me start by looking at the positive momentum we've established on behalf of shareholders over the past year.
Our priority is to get is to deliver sustainable income generation.
An attractive risk adjusted return for shareholders.
We strive to accomplish through portfolio construction differentiated origination and prudent management of our capital.
Our portfolio construction strategy continues to focus on first lien loans no diversified group of sectors, we know well.
We largely avoided highly cyclical sectors like energy in retail and instead stick to ordinating in areas like high Tech and software.
Business in financial services and health care in pharmaceutical.
Our true first lien exposure is just about 70% of our portfolio generally in line with our historical average.
We remain opportunistic across the capital stack, we believe we're being compensated for that additional risk.
We continue to improve our leadership position in the marketplace and our influence has substantially increased as our platform has scaled and matured over the past few years.
Today, we have a lead role in about 90% of our transactions.
This increase leadership role accrues to the benefit of TC GBDC at our shareholders.
We have strengthened and diversified our origination footprint.
Well, our while our core investment exposure remains domestic sponsored back leverage loans.
We now also regularly make investments outside the U.S.
In specialty strategies, such as asset base and recurring revenue lending.
And and increasingly we invest alongside other Carlyle global credit vehicles to amplify the benefits of our scale.
And finally, we actively manage our liabilities to ensure we can continue delivering results for all of our stakeholders.
At the end of 2019, we priced our first unsecured bond transaction, which has been incredibly helpful. During recent market volatility.
In addition, we took decisive action early in the second quarter to reestablish our target leverage range. We're now back comfortably inside our target leverage range of one to 1.4 times.
Overall, we were operating well in a difficult market and I'm extremely proud of the hard work across our entire team.
Let me move onto an overview of results for the quarter.
We generated net investment income of 38 cents per share.
Strong results given the significant interest rate headwinds across the entire industry.
And lower than trend origination activity.
Net asset value per share increased 4.4% quarter over quarter to $14.80 from $14.18.
Last quarter, nearly two thirds of or unrealized loss was due to spread widening of market yield benchmarks.
This quarter market yields rebounded, resulting in an overall positive impact on valuations and a partial recapture of last quarter's unrealized loss.
Finally, let me shift to discussion of our dividend.
Our focus remains generating a sustainable income stream, which delivers an attractive dividend for our shareholders.
Given ongoing economic uncertainty and a dramatically different interest rate environment as compared to past periods, we have chosen to update our dividend policy.
Our new policy aims to deliver highly secure regular dividend of 32 cents, which we intend to supplement each quarter with additional special dividends based on actual earnings.
We believe this new regular dividend, it's highly sustainable even under downside economic scenarios and for reference alone generates an annualized dividend yield on our current stock price of approximately 15%.
Under our new policy in the third quarter, we declared a total dividend of 37 cents per share which is in line with our historical regular dividend and which is comprised of the new regular quarterly dividend of 32 cents plus a special dividend of five cents.
We believe that CGP d.'s market, leading origination platform strong underwriting capabilities conservative portfolio construction and prudent liability management will drive solid operating results and over time or share price should ultimately better reflect the strength of our platform.
I'd like to thank each of you for your time in partnership let me now hand, the call over to our Chief Investment Officer Taylor Boswell.
Thank you Linda.
Since our last reported May the global economy has taken its first steps towards recovery.
Carlyle's view is that this recovery will be unpredictable in slope in duration as well as uneven across geographies and sectors.
Signs of rebounding economic activity, particularly in China, and Europe are encouraging while the potential for lingering weakness in areas, where virus containment has been more challenge like the U.S. weigh on our view.
Away from Cobis, increasing tensions between the U.S. in China, as well depending presidential election interject additional risks.
The continuing macro uncertainty leads us to maintain a cautious perspective on the outlook for the real economy in markets.
Over the same time leveraged finance market conditions continued an impressive rebound.
Secondary levels rallying alongside equities and other risk assets on government stimulus better than feared macro data progress towards vaccines and economic reopening.
That said.
Away from the high yield market, which is benefiting from strong technical demand.
Primary deal volumes were relatively light in Q2 due to the aforementioned uncertainty in a broad based slowing of M&A activity.
However, the last eight weeks have begun to evidencing noticeable uptick as market participants gain more confidence they path to close cobot normalization.
Well market wide activity levels remain short of the robust pre cobot period, our platform sourcing advantages are creating sustain deal flow.
In our core markets, we are generally seeing a combination of higher yields lower leverage and improve documentation.
In addition transactions are concentrating in sectors relatively unaffected by cope it like technology and B to B E Commerce further improving risk reward.
Finally, while there remains meaningful competition it is relatively less intense than than in past periods.
All in all we regard this new investment environment as attractive.
And one in which the resources and insights available from our broad platform offer meaningful benefits.
As such we have been actively evaluating new investments in recent months.
GGB de close for significant deals in the quarter, two of which were pre cobot commitments and two of which were entirely new transactions and we will continue to selectively deploy capital into this undeniably complex, but compelling investment environment.
Turning now to the portfolio.
At this point.
Having the benefit of four months of intense engagement. It is fair to say that performance is tracking ahead of our prior expectations.
The liquidity needs of our borrowers have been less than anticipated we've seen a reversal in calls on unfunded commitments and we placed only one additional borrower on non accrual this quarter.
In May we discussed how we anticipate levered credit portfolios will move through three stages. This cycle.
And initial liquidity draw followed by a significant amount of amendment activity and ultimately the longer term work of value recovery and maximization for more heavily impacted businesses.
TBD navigated the first stage extremely well owing to our diverse well constructed liability structure.
We're now in the midst of that second stage, and we feel equally well position.
We are finding financial sponsor partners to largely be supportive of portfolio companies. While management teams are enacting impressive change in response to this difficult environment.
An amendment conversations we generally feel that fair exchanges are being conducted with lenders receiving risk reduction or incremental return when granting relates to borrowers always with an eye towards preserving value of the underlying company.
This amendment activity began in late March will peak in the coming weeks with the formal delivery of Q2 financials and should be largely completed by year end 2020.
Given the excellent work of our team into and through this crisis or significant role when these transactions as well the depth. The partnership we have with the management teams and owners of our portfolio companies. We feel we have a high level of visibility into which portion the portfolio will require release and are increasingly confident that the vast majority of those bar.
First of all ultimately present little risk of principal loss for CGP D.
That said significant risk remains both in the macro environment and within pockets of our own exposures.
In order to better communicate portfolio risk, we made the decision this quarter to update or risk rating methodology.
The prior methodology heavy tied to trailing 12 month financial performance came up short and communicating shifting risk as reporting whatever black in this rapidly evolving cycle.
Our new methodology, which more appropriately ways qualitative or quantitative and transaction dynamics allows us to report earlier with more clarity and transparency, what we know about current and prospective performance.
You will see under the new method the deals rated three to five account for approximately 30% of loan portfolio fair value.
To be clear, we expect the preponderance of borrowers rate of three or below will perform through the cycle.
Within this group our value maximization efforts are particularly focused in the hotel gaming and leisure food and beverage and aerospace and defense sectors, which collectively represent one third of risk rated three to five borrowers.
All of our risk rated three to five borrowers 85% of fair value. Our first dollar exposures nearly all of which are covenants.
Meanwhile, the 15% of our risk rated three to five loans in second lien investments is invested in high quality issuers, averaging over 150 million of EBITDA with significant liquidity runway.
We believe both profiles provides a very favorable backdrop to support ultimate realized performance.
Putting all this in the context of our depressed stock trading valuation.
For NAFTA decreased the levels approximating CGP. These recent share price future losses would need to equates over 70% of the fair value of our entire risk rated three to five loan portfolio.
Needless to say given the senior positioning of our portfolio and its current performance trends. We think this is highly improbable.
In fact, we firmly believe our current asset valuations are prudent and appropriately reflect our portfolios value.
While we cannot predict with precision the amount and timing of value recovery or lost realization, we're confident that our portfolio will perform through this cycle.
Both in terms of NAV preservation and delivery against our revised dividend policy.
We look forward to demonstrating the same to each of our constituencies and appreciate all of their support and confidence. Thank you again for your time I'll now turn the call over to our Chief Financial Officer, Tom that again.
Thank you Taylor.
Today I'll begin with a review of our second quarter earnings then drill deeper into valuations and our balance sheet position.
It's Linda previewed we had another solid quarter of total income generation, particularly given the macroeconomic backdrop.
Total investment income for the second quarter was $45 million down from 51 million in the prior quarter.
The decrease was driven by a few factors.
First interest income on the core investment book was down from 39 to 35 million driven by the combination of more LIBOR floor and lower average invested loan balance.
Second why do you accretion fell by almost 1 million this quarter, given we had zero non schedule underpayments.
And third total income at the JV was about 1 million lower compared to first quarter, primarily due to running the vehicle at lower leverage.
One offset to the topline headwinds was an increase in total fee income driven primarily by higher amendment for related fees.
Total expenses were 24 million in the quarter down from 27 last quarter.
Largest component of the decrease was interest expense due to lower library with management and incentive fees also lower compared to first quarter.
This resulted in net investment income for the quarter of $21 million were 38 cents per common share, which is below our historical trend line well, we take a solid result, given the overall market backdrop.
As Glenn noted, we do decent we do see some pressure on this level going forward driven primarily by some of the market factors that impacted second quarter results, including the sharp drop in my bore lower income streams tied to M&A in refinancing activity and nothing to run both the BDC and our JV at lower leverage.
Based on a rigorous sensitivity analysis of these and other factors, including potential future non accruals related to cope with 19, we're confident in our ability to continue to deliver an attractive sustained dividends.
We intend to do so why not just meeting the new 32 cents regular dividend, but also consistently beating that level, resulting in special dividends each quarter. It will be size based on the prior quarters actual earnings.
On August Threerd, our board of directors declared the dividend for the third quarter 2020 at a total level of 37 cents per share and that's payable to shareholders of record as at the close of business on September 30.
Moving onto the JV is performance the dividend yield on our equity was about 10% in the second quarter.
This is consistent with the 9% to 11% expected range. We mentioned during last quarter's call. Despite a decision to run it more leverage.
Undervaluations, our total aggregate realized and unrealized net gain was $34 million for the quarter.
Picture, we still valuations increase based on the rebounded broader market yields.
This was partially offset by negative fundamentals from the impact of co benign keen on some investments.
In a bucket of portfolio into two categories.
First is performing lower cobot impacted names and I'm, including our equity investment in the JV in this category given the strength of that portfolio.
This bucket accounts for about 70% of fair value as of 630.
Based primarily on the rebounded market yields these investments increased in value $40 million compared to 331.
The next category is our historically underperforming names, some which have cobot exposure.
She experienced a 6 million increase in this category aided by some stabilizing to improving business trends and a handful of favorable amendments, which included sponsors supporting these businesses with incremental equity.
The final category is a moderate to heavier cobot impacted names.
Some of these have more severely disrupted business models as we look at both near term performance and longer term prospects.
Given the uncertainty at the stage of the cycling pandemic, we tempted to be appropriately conservative in our assessment of these names, which resulted in a 12 million dollar mark down across these investments.
You'll note the sizable realized loss of $48 million. This was primarily driven by the exit of our investments in dimensional dental watchlist, then that we previously mark to close to zero. So this realized loss is a reversal of prior period unrealized loss.
The balance was from our secondary sales efforts, which we touched on during last quarter's call.
From a non accrual perspective, we added one new borrower, we'll exit in another so total borrowers on non accrual status remained at five.
As of 630, nonaccrual stood at 3.7% of fair value and 6% based on cost.
Well finish with a review of our financing facilities and liquidity.
Total debt outstanding was about 1 billion at quarter end down 227 million from prior quarter.
Statutory leverage improved from 1.6 to 1.3 times and more importantly, net financial leverage which assumes that preferred is converted was under 1.2 times.
With this recent de leveraging unused commitments under our credit facility plus cash increased from about $320 million at prior quarter end to over $500 million as of 630.
During the second quarter, we did elect to pause our repurchase activity with capital preservation of primary goal at the onset of the pandemic.
We don't improve liquidity position going forward, we intend to pursue the appropriate balance at both share repurchases and attractive new investment opportunities.
And while we're very comfortable with our current leverage and liquidity position, we continue to look for ways to improve our balance sheet flexibility.
Given recent improvement in the rate environment for BDC issues, we're evaluating various incremental financing solutions with the primary goal to further optimize our liability structure and provide additional flexibility as we navigate through this period of market uncertainty.
One final note, you'll see we filed a preliminary proxy for the ability to issue shares below entity.
We think this is prudent corporate finance policy and provides us additional flexibility to defend the portfolio primarily during periods of extreme market volatility.
Given our current balance sheet positioning we have no near term need or intention to issue shares below NAV.
We appreciate your support for this though.
With that let me turn the call back over to Linda for some closing remarks.
Thank you Tom.
I'll finish where I started.
We have significant momentum in our company with a high quality largely personally investment portfolio that is driving attractive investment income for our shareholders.
We're strengthening our origination capabilities and fortifying our balance sheet.
There's still work to be done, but TC GBDC is well positioned to successfully managed through the current environment.
Thank you and we're now ready to take your questions.
Thank you as a reminder, if you'd like to join the queue. Please press Star then one on your touched on telephone to withdraw your question from the Q. Please press the pound key.
Please standby will be compiled the culinary roster.
Our first question comes from Rick Shane with JP Morgan. Your line is now open.
Hey, guys. Thanks for taking my question and I apologize.
I know, we can pull this out of Q, but what are the non accruals costs for the second quarter were actually give me some data problems today.
To that.
To the first quarter as well please.
It's Tom.
Percentage of not.
Okay.
Yeah.
Sorry, it was 6.6% on costs.
And what was it at the first quarter again, I'm, having trouble accessing my my normal resources I apologize.
Yes sure. It was up is up I hear from from a on a cost basis.
The.
That was an uptick from first quarter. It was 5.4% on costs as a 331.
Okay, great. Thank you and then look you know I think rationalizing the dividend dividend policy in like Oh, all the way the stock is trading and its value.
Makes a great deal of sense.
Some more flexibility.
I am curious to hear you know the other part of that is investing in your own stock repurchase what's what's the outlook there and what's the appetite given the levels.
Hi, Rick it's it's Linda Yeah. Good question, it's something that that we're consistently looking at given as you point out where our stock price is training, we definitely think our stock is an excellent body.
So we evaluate that an ongoing basis, we haven't got 14 billion left on our share repurchase program and we're likely to go back to the board to re upped that.
But what we want to do it you know there's still a lot of uncertainty. So we do want to make sure that were being balanced and know how we use our our cash and how we protect our balance sheet.
But you know.
We do as I said, we do think our stock as it is a pretty good bye, but we don't want to get too far out over our skis likewise balance sheet is positioned.
And that there's still a lot of uncertainty in the market. So we do want to approach it pretty cautiously.
Yeah look at it gets a fair point easy.
I'm, sorry to say by the stock by the sockets cheap, but Dennis will turn a little bit worse or you're going to wish you got the capital. So we appreciate it.
Exotic you guys can transfer.
Saarland I interrupted.
No I just don't say so yes, no. Thank you for for bad.
Yeah, where we're we're thinking the same way. So appreciate the question.
Got it thanks guys.
[laughter].
Thank you and as a reminder, if you'd like to ask a question. Please press Star then one on your touched on telephone. Our next question comes Ryan Lynch with KBW. Your line is now open.
Hey, good morning, Thanks for taking my questions I'm just wanted to have follow question with the supplemental dividend I'm trying to do you guys have a framework for or against attention to pay now that supplemental dividend going forward or is that going to be.
Basically a 100% payout of operating earnings of 50% pay out a dog about your for dividends is just any sort of frame work you guys have access to palko supplemental dividends going forward.
Hey, Brian It's Tom you don't you'll see in particular as an example for this quarter we size the five cents special based on effectively second quarter results so paying.
Uh huh.
The majority be excess.
32 cents.
We would anticipate doing the same going forward.
Looking at the prior quarter's results and paying out some supplemental size to our actual results.
Okay.
And that's something we anticipate you know the 32 cents we.
Well with and you know, we anticipate each quarter exceeding that level and paying a special opposite special amount will vary quarter to quarter.
Okay got it.
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That said you'd that should because of the payoffs in the increase in loan valuations are you guys are now back within your target leverage range of one to 1.4 times can you clarify you guys have I've got to equity at quarter end dose of 1.72 times in a statutory debt.
Well you 1.31 times can you clarify a.
Are you for your targeted leverage range that can be using that you your debt to equity metric or your statutory debt to equity metric.
Right and something we look at both and particularly as as the as the market evolves, we will be conscious of both in terms of obviously the flexibility that we haven't that preferred equity tranche, but it's something that right now we're comfortably right right in the mill.
With that range really with both metrics and symptom keeping an eye on the market evolves.
Okay.
Then if you'd mentioned it Taylor I might just yet emphasize the point there that.
You know when it comes to like practically managing the balance sheet liquidity leverage how definitions of leverage flow through our different facilities and the like really that financial leverage concept visit more applicable concept for the day to day operation of the right side of our balance sheet, but we of course are mindful of statutory.
As well.
Okay.
Make sense, you mentioned, you know, having some loan modifications as well as thank those who actually you know pick up as it has more results are coming in can you just talk about so far one common new loan modifications were made.
In the second quarter and to audits those loan modifications that were made.
How many.
How many of those cases was the private equity sponsor a willing to come in to provide additional capital support in order to to get those loan modifications and what have those conversations bank like as you guys are working through.
And all lenders are working through stressing their portfolios what has spanned.
The dialogue with sponsors and their willingness and ability to serve to support some of these these companies that do that are challenged in this downturn.
Hey, Ryan It's Tom you know the I'd say that our level of amendment activity in the first in the second quarter was moderate and certainly picking up meaningfully here in the third quarter as.
[laughter] second quarter covenants and [laughter].
Our transactions have financial covenants, so quite a few borrowers dealing with.
Second quarter reaches more anticipated breaches of those are the men's working on real time, when we look at the amendments that we in the second quarter, you're quite count on one hand in terms of the level of material amendments, but as look across the board.
Three of.
Material investments.
Included consistent sponsors.
Checking additional equity.
And you typically in exchange for US also getting additional rate, but for and but in each of those cases agreeing to some loss pick interest typically on a temporary period for the comes to get through cold. It went through any temporary performance challenges. So in each of those cases equity covenant relief additional economics some of the former pick and then.
<unk> interim pick relief for some of our interest has a pretty standard across the board for a more material amendments.
Okay.
That's helpful.
Helpful commentary.
And then just one last one you know I think you said in your prepared remarks.
As this quarter is kind of.
Played out.
It feels like some of the performance out some of your companies have improved.
But it didn't need haven't been as as.
As large as you guys were initially expected in circles, where things are going you know technically heading into right direction. Although obviously, we're still in a pretty do downturn.
Very slow recovery I'm just wondering.
You know when we look at your current level up nonaccruals or faults in your portfolio do you expect that we've kind of hit peak levels at the end of a this quarter or do you think that that that will continue to trend higher going forward of course, knowing you know nobody really knows that outlook, but but just.
Based on the conversations you've had with your sponsors of liquidity needs of your companies today.
Yeah, Hey, its Taylor I think what I would say is.
That you know.
Let me play approach. It this way are all of our non accruals on current non accruals today, our first dollar exposures and so yeah, we really feel pretty strongly about our ability to recover that capital and get that capital, earning again over overtime and so I think that there are.
Is a significant amount of confidence.
In our in preserving our earnings level generally the harder thing to predict as you know is whether or not in one quarter, yeah, we might bump and additional non accrual one when another one is it rolling off so theres, a little bit of unpredictability quarter to quarter I would say.
But I think were generally feeling like we're well accounted for in how we've established our new dividend and well accounted for in terms of the overall performance the portfolio. So I don't think we are anticipating.
The material increases going forward.
And I think Theres, yeah look pretty balanced profile when I look at the.
No the risk and opportunity in that line item.
You know going forward, but yes, there is uncertainty out there so we want to be cautious.
About that topic obviously.
Okay understood. Those are all my questions I appreciate the time today.
[laughter].
Okay.
Thank you and our next question comes a finian O'shea with Wells Fargo Securities. Your line is now open.
Hi, good afternoon.
Huh.
Taylor just to sort of segue on that one in discussion with Ryan.
We go back to your comments on.
This downturn recovery.
You know you said the initial fees was you know away less bad than they could have been and now we're sort of in the amendments fees.
Which is going well and and then you [noise].
And you expect that to and.
With June financials.
What level of re underwriting are you doing.
As you make these amendments.
My concern here is is are you sort of saying, it's all over because you've gotten through the worsen now you make an amendment.
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Given we don't really know what the new normal is going to look like for for these financials, we've got through the bottom, but but how do we know where.
Earnings will be for these portfolio companies say next year.
So any comment on.
How conservatively these are being reorder rate and as you as you know recapitalizing amend and so forth your borrowers.
Yeah, Hey, fend good good morning.
I think that the first get put in context I'd put around that as you know for most of the businesses that are seeing cove. It impact are not businesses that have gone to zero from a top line perspective and remain at zero Theres a significant portion of those portions of our portfolio.
Where we actually can see the rebounding earnings occurring currently and can see positive earnings development and so for those names.
It is a relatively clear path I think to a understanding where normalized earnings will settle for those businesses and again the level.
We underwriting we're engaged in there is perhaps.
Are you know not as phone not as deep as focused as those names that are deeply impacted and then we called out a couple of a couple of sectors, where that deeply impacted activity.
That is more concentrated in our in our prepared remarks.
In those businesses.
Think we've we take our confidence from from a couple of things one is our senior positioning in the capital structure and generally the you know the amount of enterprise value behind us on a on a pre cobot basis gives you a lot of a lot of room to absorb.
Uh huh.
Detrimental actions around the value of the business through this crisis and I'd say as we as we are.
As we approach the amendment conversations are you always have a choice of what the focus on you can focus on risk reduction or return enhancement in those names we focus on risk reduction.
And making sure the businesses operate with enough liquidity, because I think the most severe outcomes for lenders tend to be businesses that are run liquidity star for a long time. So we're really in a broad based partnership in the severely affected businesses with the owners to bridge through to the other side of this crisis and if it ends up being six months nine months 12 months.
We generally see everybody in the boat rolling in the same direction to solve for that yeah, and and the last point I'd make is there is enough data even in most of the severely impacted business is to start to understand curves. If it's a multi unit business to understand unit level profitability at different levels of demand to inform your valuation conversation.
And then and strike a view about where the balance of risk and rewards should should strike that ultimate valuation. So I'm kind of a long answer fan, but it's a complicated topic in the and I guess, maybe it would it would be zipped up in a we've just we're just learning a lot yeah were four months into this and constant conversations with everybody around the table.
The data is coming back and if we just we can just refined and Titan with each week that passes and we feel better and better again not out of the was but feel better about.
Okay, then it's Linda maybe I'll just add.
So to your point about re underwriting and really that really does tie into you know our decision to improve our risk rating methodology.
I think what what cope with 19 really sort of brought to light would that we.
I wanted to have a anymore.
A risk rating policy that better incorporated our our views going forward.
And even while still relies on kind of historical performance.
You know.
Especially in it and at times like this it's really what can we think is going to happen in the future.
That's one of the reasons why we did do the revision. So I think I think yes, you know where where.
We're still doing rigorous credit work, but with that would definitely an emphasis on how do we view the names in our portfolios.
You know in light of the uncertainty that we're seeing in light of the you know the global health crisis that we're all going through so if you wanted to point to something tangible that that reflects.
The question you asked I would I would point to you know to our revised risk rating policy.
I'm sure you I I.
Actually really stands out and that was going to be part of my next question.
Forgive me if you broke this out already but.
And the concept of re underwriting or or rating in valuing you know more forward looking.
Two to two reflect where you would do alone today.
Looking at.
You know your overall portfolio was up but the names that were down.
Is there a breaks down.
From your new rating system.
Versus you know incremental fundamental decline.
Is it you know just I guess ballpark is it 50, 50 or tilted one way or another for the group of names that saw a decline.
And it's Tom I'd say, it's difficult to put an exact number on that but I'd say, it's certainly a correlation between deals that previously were risk rated two and LNG and by the way first quarter results may have still been pretty good and I had a lot of cases, but we know that.
Second quarter was gonna be difficult in the company may have had.
Headwinds going forward.
That dealing with potentially be a three under our new risk rating scale and those more cobot impacted names more likely to happen like leasing decline in the 630 relative to 331 [laughter].
Well.
Uh huh.
Certainly.
We.
Oh, probably package deals.
Referring to three under the new system and dealing with valuation declines 331 to 630.
Okay got it Okay fair enough and calm last question for you.
Appreciating your color on the Mmcf earnings.
I believe last quarter.
You said that.
This quarter next quarter would be trough earnings for the Mmcf correct me, if I'm wrong there.
But is there any you know I I think those.
You know seal is or static in there too so it would keep declining if you don't.
You know rapid.
In another way, but is there.
Is that still the case.
Do you ever more you know short term I guess in medium term.
Outlook for the leverage profile.
And therefore earnings profile of the Mmcf.
Sure fit I don't I'm not sure by class funds trough, but more it given an expected range that was a bit lower than we had historically you know historically, we've been more mid teens and last quarter and as we see it today still expectation of about 9% to 11% and that's what we earned and that's.
I didn't taste for the second quarter, and that's where we see we'll put normalized earnings right now and.
Got it stable book is performing very well it has nothing like cold.
It's one that please.
Orphan uncertainties and plan to.
Stay the course keep leverage.
Than it's been an instant historically and we anticipate.
Near term.
The same relatively consistent 9% to 11% clipped for that vehicle.
Okay I appreciate the color thanks, everybody.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to the speakers for any closing them.
Thank you very much.
If you do have any further questions feel free to reach out to Investor relations at any time, otherwise, we'll look forward to speaking with all of you next quarter.
Ladies and gentlemen, thank you for your participation on today's conference. This does concludes your program and you May now does.
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